Market force

Tom Toulson talks to Citi's Head of EMEA Markets, Jim Cowles, about the growing financial markets and what it means for graduates

"This business is all about personal leverage not just financial leverage."

Jim Cowles seems relaxed, remarkably so for someone who has to cover three hugely important regions. Citi's Head of Markets for Europe, the Middle East and Africa is explaining how he manages his division.

"The more responsibility you take on, the more leverage you provide to whomever you're reporting to. The more people reporting to me can do, the more it frees me up to do other things. The sooner graduates coming in can take on responsibility the better. If you've been here six months and you can take on a trading book then great, take on a trading book."

Maybe he's in a good mood because his department have just made the best returns in their history. Not bad for a crisis. But I get the feeling Jim Cowles is always pretty confident about his business. Still there must have been some hairy moments.

"One thing I'll say about the last year, it's not been boring."

With the rally in the global markets (US stocks are up 60 per cent in barely six months since their bottom in March) does he think we're out of the woods yet?

"Confidence has returned to the market place. I think the concern that we were going to have a total systemic meltdown has passed. The governments and the central banks did the right things, injecting liquidity into the system. The next question is what about the wider economy?"

Global economic growth is barely above zero and unemployment is still high. The global financial system is still being flooded with cheap money by governments. Confidence has returned. But has the market now become overconfident?

"There are many different opinions about where we are in the recovery. Are we in a 'V'? Are we in a 'U'? Are we in a 'W-shaped' recovery? But all those opinions together constitute the market. People look at the price of assets and ask is it going up or will we see a reversal?"

For a measure of whether there are grounds for the market's confidence, he suggests we pay close attention when corporate earnings are posted for the third and fourth quarter of the year.

"In the first quarter the banks and many corporates made profits because they managed to cut expenses, not because there was much top line growth. Now that savings have been made it'll be interesting to see if there's real growth. I think the third quarter may be a little too soon..."

But you can tell he's optimistic. The big question, he concedes, is what will happen when governments start to turn the money taps off.

"It needs to be done but it must be done gradually. It has to be a controlled process. From what I understand, most of the central banks are acutely aware of this."

Does he accept the need for "tough new regulations" (Barack Obama's phrase) in the global economy? Or is this like asking a turkey if he looks forward to Christmas? Perhaps surprisingly for a banker, Mr Cowles seems quite fond of the regulators.

"In most cases we find they take a very constructive approach." But he adds:

"The most difficult thing about new regulation is the law of unintended consequences. You think you're solving a given problem and perhaps you are. But you may create a new problem for tomorrow that no one's thought about yet. This doesn't mean that we don't need regulation. It means it must be done carefully with as much input as possible from those affected."

One of the areas people want to regulate is pay and bonuses. Many argue the way remuneration policies were structured incentivised excessive risk taking. So how significant a factor were they in the crisis?

"There were a great number of things responsible for the crisis. It would be wrong to assign blame to one particular cause. However, the issue of compensation is important. The way in which compensation is structured does affect the way in which people behave. It's an issue of risk. For every deal, our people need to understand that there's a potential upside - and they will get compensated for that. But to every deal there's also a potential downside and their compensation must also take that into account."

But with all the negative headlines, not to mention the chaos in the markets, it must have been a hard year. Has it changed the culture within the bank?

"Whenever you go through such times it tests the culture of an institution. I feel proud of the way we've met that test. I think the culture as a result has become stronger. We've always been focused on our clients but when the markets are in turmoil it's especially important to sit down with them. Sometimes neither of you know what's going on but at least you can commiserate with them, and ask them what's happening and how you can be helpful. I think our people have done a great job staying focused. You can see that in the financial results we've achieved in the EMEA markets."

Ah yes, those results. How were they achieved?

"It starts with the people. We make sure we have the right people and then we train them properly. And we're a growing business. We have a greater presence in EMEA than any of our competitors. We need to maintain that position. Next year we have a plan to bring in twice as many people into our sales and trading graduate program."

Why are they doing this?

We've had a very positive experience with the graduates we've had so it's appropriate to bring in more people. And also, we've learnt from past mistakes. In previous downturns a number of institutions cut back the number of graduates they were hiring. Then what happens is you find two or three years down the line you have a huge hole. You simply don't have the enough people at the right level.

So who are they looking for?

"One of the things I love about this business is that it can absorb a huge range of personalities. We have all types here from the ultra-outgoing to the highly intellectual. You could have a humanities background or a PhD in Mathematics. What matters is that you can contribute to the group. It's important to understand that you can be fiercely competitive in your work but you must always be supportive of the people around you."

Like he said, it's all about personal leverage.

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